The invention relates to a computer system for supporting commercial transactions, more especially but not exclusively a computer system for supporting trade of goods by shipping, wherein shipping will be understood to include transit of goods in ocean going vessels, air-freight, rail-freight and road haulage, for example.
For several centuries there have been established procedures for international trade in goods based around the use of a Bill of Lading. A Bill of Lading is a document used in connection with shipment of goods from a seller (or other party causing a shipment) to a buyer (or other receiving party) via a carrier. The Bill of Lading is generated by the carrier when the seller gives over the goods to the carrier for shipment from a dispatch port to a destination port.
The Bill of Lading includes an inventory of the goods received by the carrier and a verification by the carrier of the good condition of the goods. The Bill of Lading also includes a contract between the carrier and the seller that includes an undertaking by the carrier only to hand over the goods at the destination port to someone who produces the Bill of Lading.
After generation by the carrier, the Bill of Lading is initially in the possession of the seller. While the goods are in transit with the carrier, the Bill of Lading passes from the seller to the buyer, often via various intermediaries such as the seller's bank and the buyer's bank. Ultimately, the Bill of Lading becomes exhausted when presented to the carrier at the destination port in exchange for the goods.
Some details of a common transaction between buyer and seller via their respective banks is now described. The goods are handed over to the carrier at the dispatch port. The carrier generates a Bill of Lading and certifies the goods to be complete and in good order. The seller takes the Bill of Lading and gives it to his bank. The seller's bank may then credit the seller's account with the sales amount associated with the goods, if a letter of credit and bill of exchange are also present for the transaction. The seller's bank then sends the Bill of Lading to the buyer's bank. The buyer's bank now in receipt of the Bill of Lading credits the seller's bank by the sales amount and debits the buyer's account by the sales amount. The buyer's bank then sends the Bill of Lading to the buyer, who is then in possession of the Bill of Lading and thus able to pick up the goods from the carrier at the destination port. In practice, the handling of the Bill of Lading by the various parties is often affected by the existence and terms of other documents involved in the transaction, but these collateral documents are not described here for the sake of brevity. Moreover, the Bill of Lading is not itself a payment instrument, the corresponding payment instrument often takes the form of a Bill of Exchange or Draft. Again, the nature and role of these documents are not described here.
The Bill of Lading may be a non-negotiable (i.e. non-transferable) instrument, in which the designated buyer cannot be changed. In this case, the carrier is bound only to hand over the goods at the destination port to the buyer stated in the Bill of Lading at the time of its generation by the carrier at the dispatch port. The designated buyer of a non-negotiable Bill of Lading is referred to as a consignee. The non-negotiable Bill of Lading is referred to as a Straight Bill of Lading.
However, it is also widespread practice for the Bill of Lading to be a negotiable instrument, in which case the designated buyer can be changed during transit of the goods. In such cases, the designated buyer may in fact not be the ultimate recipient of the goods, but is merely an intermediate endorsee of the Bill of Lading. The endorsee of a negotiable Bill of Lading is referred to as the To Order Party. When the Bill of Lading is generated by the carrier, it already specifies whether the Bill of Lading is negotiable or not. If the Bill of Lading is negotiable when generated, the carrier will know that the To Order Party, i.e. the designated buyer, may change in transit. Clearly, if the Bill of Lading is generated as a negotiable Bill of Lading and the buyer is changed in transit, then the carrier will give up the goods at the destination port to whoever produces the Bill of Lading.
It is physically possible for the To Order Party stated on the negotiable Bill of Lading to be changed by any party in possession of the Bill of Lading. However, it is usual practice that parties do not endorse Bills of Lading to banks, for example, and thus, banks do not become To Order Parties even though they receive, hold and pass on the Bill of Lading. Banks generally rely only on physical possession of the Bill of Lading to secure their position in relation to other parties involved in the transaction.
A negotiable Bill of Lading may also be negotiated the person who physically possesses it (its bearer), if it is endorsed in blank. Such a Bill of Lading has no To Order Party while blank endorsed. The To Order Party may later be added at some stage prior to the goods being picked up from the carrier at the destination port. Again, generally banks do not wish to appear in the visible chain of endorsement and so will receive, hold and pass on a blank endorsed Bill of Lading without entering themselves as a To Order Party, although the utilize possession of the Bill of Lading as a sort of collateral for credit they have extended. However, commercial intermediaries may wish to enter themselves as a To Order Party to indicate their interest.
Thus, either with a blank endorsed Bill of Lading or an endorsed Bill of Lading with a specified To Order Party, the Bill of Lading may pass through a party who makes no change to the Bill of Lading and thus relies solely on physical possession of the Bill of Lading to establish or secure his interests. This has the advantage that confidentiality is retained since a party such as an intermediary bank will remain unknown in the transactional history of the Bill of Lading, since there is no evidence on the Bill of Lading to trace back previous holders of the Bill of Lading unless they were entered at some stage as the To Order Party.
It will thus be understood that, especially in the case of negotiable Bills of Lading, the conventional Bill of Lading transaction system relies extensively on undocumented physical possession of the Bill of Lading. Moreover, it is common for there to be divergence between the apparent legal chain of endorsement on the goods in transit, as evidenced by the Bill of Lading, and the real chain of constructive possession of the goods through possession of the Bill of Lading. The conventional Bill of Lading system is thus reliant on the uniqueness of a Bill of Lading. There must only be one Bill of Lading, since the whole system is based on the passing of rights with the Bill of Lading, i.e. with a unique document specific to one transit of the goods that are specified in the inventory part of the Bill of Lading.
However, various practices have developed which undermine the effectiveness of the conventional Bill of Lading system.
One malpractice is the issuance of multiple Bills of Lading for the same goods by the carrier. The carrier provides the multiple originals to the seller. Taking the example that two originals are generated, the seller can pass one to his bank to obtain prompt payment for the goods in transit. The seller can then pass the other to the buyer, so that the buyer will be able to pick up the goods from the carrier, even if there are delays with the processing of the Bill of Lading by the seller and buyer banks. Carrier, buyer and seller all have an interest in colluding in this way. However, once multiple Bills of Lading are in existence for the same goods, the whole system is liable to fraud, even if the original motive for issuing the multiple Bills of Lading was not itself fraudulent. The scope for fraudulent activity is especially high for negotiable Bills of Lading, most especially for blank endorsed Bills of Lading. For example, Bills of Lading may be accepted as security for loans or mortgages which could thus be fraudulently obtained. It is thus possible for multiple loans, for example, to be obtained using a single consignment of goods as security.
Another malpractice is forgery of the Bill of Lading. If a Bill of Lading is forged, then the carrier may hand over the goods at the destination port to a person who produces the forged Bill of Lading together with bogus identity impersonating a representative of the consignee or To Order Party. Scope for forgery arises when information on the nature of a shipment can be obtained by the forger, for example by obtaining a photocopy of the Bill of Lading. In the case of ocean transit by ships, the minimum transit time may be several weeks, in which case a forger has considerable time to complete the forgery.
Although the conventional Bill of Lading procedures are imperfect, their continued existence as the main transaction system underpinning international trade is a testament to the fact that to date no viable and superior alternative has been established. Electronic transaction systems are well established in other areas of banking and commerce, in some cases almost to the exclusion of conventional paper transaction instruments. Notable examples are the computer systems operated to underpin electronic payment transactions.
An e-mail approach to making a Bill of Lading work electronically has been previously proposed, but fails because it does not take sufficient account of the fact that the conventional Bill of Lading system relies on there being only one original Bill of Lading. If a computer record is generated to represent a Bill of Lading and it is transmitted from a transmitting party to a receiving party, the Bill of Lading record loses its functionality as a Bill of Lading, if the system cannot distinguish between the copy of the Bill of Lading record at the receiving party and the copy of the Bill of Lading record at the transmitting party. Moreover, such an electronic system is still more prone to the types of fraud based around multiple Bills of Lading described above, since the Bill of Lading is merely a computer record that passes through several computer systems and is thus prone to replication by any party in the transaction chain.